Often major shifts in consumption happen by stealth. They creep up without us really giving them too much thought. For example, one minute we’re buying CDs or DVDs from HMV, the next we’re picking playlists via Spotify, or streaming box sets from Netflix.
Except for those running a business. Then you probably do think about these changes. Especially if you suddenly find yourself paying for other less obvious consumables in the same way – coffee, razors, wine – even nappies. Suddenly, you think, what’s going on here?
The fact is, in these days of tighter cash flow and other uncertainties, the subscription model has much to offer. Not least a steady, more predictable stream of recurring revenue with ongoing opportunities to build relationships and engage with customers to hone the service and to cross-sell and up-sell. So it’s not surprising that it’s growing fast in popularity.
However, unless you are considering a niche market, digital start-up then surely it’s more of an interesting phenomenon than a serious business consideration – especially for those running solid, established, mid-range organisations? Or is it?
Benefits of a subscription model
In truth, mid-sized businesses can also benefit hugely from a subscription business model. It’s no secret that as markets mature, there’s more competition, and with it the need to be even more innovative, more responsive and more agile. Rivals have had time to replicate the business model – and possibly undercut prices. So it becomes harder to thrive and grow.
Launching new subscription services can be faster and be achieved without breaking the bank. And they can easily be refined, added to or changed quickly in order to hit the right spot. This is one of the real benefits of this business model – it makes continuous innovation and reinvention far easier. If, of course, it’s approached in the right way.
But it’s understandable that, if you run a long-standing, settled operation, the idea of major change will send a few shivers down the spine. It’s likely that you’ve invested heavily in your existing billing system and it’s probably been tweaked and tailored exactly to your needs. But, sadly, it’s also inevitable that a system designed for one-off products or ad-hoc service engagements will be too cumbersome and inflexible to handle a recurring billing relationship. Does it even store payment details so that invoices can be settled automatically?
And it’s true that while many businesses are good at conjuring up compelling new ideas for their target markets, the make or break does sit with the back-office IT systems; in particular billing. Get it wrong and this could put the entire venture at risk.
However, this doesn’t mean that mid-sized businesses can’t break the mould. In fact, new cloud billing systems have made it possible for organisations of all sizes to benefit from the trend – and do so quickly to take advantage of being first to market in their field.
These are changing the game by providing a new agility that will shake up a tired business model by making everything faster and more customer focused. For example, they enable companies to provide more payment options including automated methods such as direct debit and continuous payment authority (CPA), as well as offline methods such as bank transfer and even cheque. Providing this level of choice makes the service more accessible and more convenient for customers – and if it’s easy, they are more likely to pay on time, so ensuring steady cash flow.
These systems also make it easier to chop and change a product or service bundle to suit a customer. While most consumers will be happy to pay a standard price for a standard product, some will always want to negotiate a lower price and look for a service to be tailored more to their needs in some way.
So being close to their way of thinking and being prepared to try and try again to reach the winning formula is key. Not many get it right first time, so it means having the space to fail fast, learn from feedback or results and then quickly adapt your service or product to the evolving market.
Staying ahead of the competition
It’s not just first-time subscription providers that need to do this. Even those businesses founded on the subscription model must keep refreshing their services and produce as many colourful new combinations as possible to stay ahead of the competition.
For proof, just look at Spotify. It’s recently announced the launch of a new Family Plan which enables users to add up to four members of the same family to their account – it’s constantly reviewing what its customers want and updating its offerings accordingly. Amazon is another master of reinvention – it is now testing Kindle Unlimited, a new ebook rental service which offers unlimited access to more than 600,000 titles on any device, paid for by a small monthly fee.
Also, this quiet revolution is not confined to the consumer world. B2B businesses are increasingly moving to the subscription ‘as-a-service’ model too; from software and printers, to water and stationery supplies. In this environment, it enables providers to add value to the relationship with their expertise and consultancy with the aim of becoming long-term trusted and relied-upon partners.
Yet the secret of success remains the same – constant refreshment of ideas and offerings that reflect customer feedback, so creating a virtuous cycle of loyalty and engagement. And vitally, the back office operations to enable this and to ensure that changing but recurring revenues are collected promptly and smoothly.
Hopefully, successful migration to such a subscriptions model will drive business growth. Then the scalability of cloud-based technology, will make it easy to expand these operations accordingly, both in size and in capability. Access to new application features and enhancements is usually provided automatically as part of regular software updates.
Finally, don’t expect your competitors not to act. They are likely to decide to follow you into this new way of selling. However, with the right systems in place, you can always be one step ahead, driving the changes rather than reacting to them.
Louis Hall is CEO of Cerillion Technologies.